Mr. BUCHANAN. Of these 117,000 units under Public Law 412, the Federal Government loaned only 62 percent of the total capital cost, while private investors covered about 38 percent of the cost; is that not true? Mr. EGAN. That is about right, Mr. Buchanan. Mr. SMITH. What did those low-rent houses cost? Mr. EGAN. You want an average cost for the country, do you, Dr. Smith? Mr. SMITH. No, I want the total cost. Mr. EGAN. The total cost? Mr. SMITH. Yes, the total cost of the 116,823 low-rent housing units constructed. Mr. VINTON. I will have to add that up, sir, if you will bear with me for just a moment. Mr. SMITH. Certainly. Mr. VINTON. I will have that in a moment. The total cost of the projects developed under Public Law 412 amounts to $524,000,000. Mr. SMITH. Mr. Egan, while Mr. Vinton is doing that let us get back to this proposition that these projects are to be financed 100 percent by private capital. You make that claim, do you not? Mr. EGAN. What is that, Doctor? Mr. SMITH. You make the claim, do you not, that this program is to be financed-and I am speaking now about the provisions contained in S. 866, titles V and VI, relating to low-rent housing-that this program is to be financed by private capital? Mr. EGAN. Is your question: Do we claim that the entire develop. ment cost of the project can be financed by private funds? Mr. SMITH. Not can be, but is intended to be. Mr. EGAN. It is our hope, Doctor, that we can, if we get the perfecting amendment that is outlined in S. 866. Mr. SMITH. Let us look at page 88 of the pending bill, beginning at line 10. Mr. EGAN. Is that of the bill itself? Mr. SMITH. Yes, the pending bill, S. 866. [Reading:] ANNUAL CONTRIBUTIONS AUTHORIZATION. SEC. 605. Section 10 (e) of the United States Housing Act of 1937, as amended, is hereby amended by inserting the following after the first sentence thereof: "With respect to projects to be assisted pursuant to this act, the Authority is authorized, in addition to the amount heretofore authorized, to enter into contracts, on and after the first day of July 1948, which provide for annual contributions aggregating not more than $32,000,000 per annum, which limit shall be increased by further amounts of $32,000,000 on the first day of July in each of the years 1949, 1950, 1951, and 1952, respectively: Provided, That the contracts for annual contributions with respect to projects initiated after July 1, 1948, shall not provide for the development of more than 500,000 dwelling units without further authorization from the Congress." What is the estimated cost of the 500,000 units proposed to be built? Mr. EGAN. I would say the ultimate cost of the 500,000 units proposed to be built would be approximately $6,000,000,000, maybe less. Do you mean the capital cost, or the cost under this section? Mr. SMITH. Let us get the construction cost first. Mr. EGAN. When I said the "ultimate cost" I was thinking of the capital cost, plus interest. The development cost, I would say, would be approximately $3,500,000,000. Mr. SMITH. And the ultimate cost will be approximately what? Mr. EGAN. The ultimate cost, I would say, would be approximately $6,000,000,000, if the annual contributions were paid each year in the maximum amount, which we hope will not be the case. Mr. SMITH. Roughly $6,000,000,000? Mr. EGAN. Yes, sir. Mr. SMITH. Let us now turn to the original act. Do you have a copy of it before you? Mr. EGAN. Yes, sir. Mr. SMITH. Section 1410, under subsection (e). Mr. VINTON. Section 14 is only one short section, sir-about 10 lines. Mr. SMITH. I have the code before me. This is the code of the Laws of the United States of America, Laws of the Seventy-fourth Congress, and so forth. Have you this language anywhere? Mr. EGAN. I have section 14 before me, Dr. Smith, which starts: "Subject to the specific limitations or standards," and so forth. Is that the language to which you refer? Mr. SMITH. 1410. Mr. VINTON. There is no section 1410. Mr. SMITH. I meant section 10 (e) of Public Law 412. I think you can identify it if I read it. Mr. EGAN. All right, Doctor. Mr. SMITH (reading): The faith of the United States is solemnly pledged to the payment of all annual contributions contracted for pursuant to this section, and there is hereby authorized to be appropriated in each fiscal year, out of money in the Treasury not otherwise appropriated, the amounts necessary to provide for such payments. Mr. EGAN. That is correct, sir. Mr. SMITH. In what essentiality does this guaranty by the Federal Government of the bonds that are sold to raise the funds for financing low-rent-housing projects differ from the obligations which the United States Government sells for raising funds for any other purpose? Mr. EGAN. I would prefer to have our financial counsel answer that, Doctor, if you do not mind. Mr. Miller, will you answer that question, please? Mr. MILLER. Doctor, as I indicated the other day, on the general obligations of the United States Government the faith and the credit of the United States is pledged to the payment of those particular obligations. In this case-in this section 10 (e) that you are reading-it merely says [reading]: the faith of the United States * contributions is pledged to the payment of annual Not to the payment of the obligations, but to the payment of contributions. Now, the payment of contributions, if they are paid-and if none of the conditions applicable to them are broken-will be sufficient to pay off the principal and interest of the obligations, that is true. But the faith of the United States is not pledged to the obligations but to the payment of the contributions. Mr. SMITH. What is the difference between a contribution and an obligation? Mr. MILLER. I am talking about the bond. Our contribution———— Mr. SMITH. What is the difference between a bond and a contribution? Mr. MILLER. The local authorities issue bonds which recite that the local authorities promise to pay, on a certain day, $1,000 to the holder of the bond. That bond is an obligation of the local authority. The faith and credit of the United States is not pledged to that obligation because it is the obligation of the local authority, not the obligation of the United States Government. The faith of the United States is pledged only to the payment of contributions to the local authority. Mr. SMITH. Who buys those bonds? Mr. MILLER. Private investors and ourselves. Thirty-eight percent have been bought by private investors of different types. Mr. SMITH. Let us read this section 605 in this bill once more and see whether it means what it says or whether it does not mean what it says. [Reading:] Section 10 (e) of the United States Housing Act of 1937, as amended, is hereby amended by inserting the following after the first sentence thereof: "With respect to projects to be assisted pursuant to this Act, the Authority is authorized, in additon to the amount heretofore authorized, to enter into contracts, on and after the first day of July, 1948, which provide for annual contributions aggregating not more than $32,000,000 per annum, which limit shall be increased by further amounts of $32,000,000 on the first day of July in each of the years 1949, 1950, 1951, and 1952, respectively: Provided, That the contracts for annual contributions with respect to projects initiated after July 1, 1948, shall not provide for the development of more than 500,000 dwelling units without further authorization from the Congress." In what particular are the contracts involved different from the contracts which the United States Government makes in a bond transaction of the ordinary kind? Mr. MILLER. In a bond transaction the United States Government agrees to pay to the holder of the bond a certain fixed amount on a certain day. Mr. SMITH. Is that not exactly what this provision provides? Mr. MILLER. There is an important difference. We agree, here, to pay contributions, on a fixed date in a fixed amount, to the local authority. But that is not an obligation to pay bonds. Mr. SMITH. You say it is not on the bond? What is it on? Mr. MILLER. It is under the contract. We agree under the contract. Mr. SMITH. What does the contract deal with? Mr. MILLER. The contract deals with the development of a project, and under the contract the Government agrees to make payments to the developer of the project-the local authority-of a certain amount, every year, to assist him in maintaining the low-rent character of the project. Mr. SMITH. And there is no relation whatsoever between the annual Federal contributions and the securities which the local housing authority puts out? Mr. MILLER. Yes, the annual contributions are pledged to the bonds that the local authority puts out. Mr. SMITH. Then there is a relation? Mr. SMITH. What is that relation? Mr. MILLER. The annual contributions are pledged as security for the bonds. Mr. SMITH. Where does the Federal Government get the annual contributions? Mr. MILLER. Well, they usually appropriate every year. Mr. SMITH. It gets it from taxes, does it not, or from borrowing? Mr. MILLER. Yes. Mr. SMITH. So that, if it gets these funds through taxation or through borrowing, it pledges the faith and credit of the United States Government-does it or does it not? Mr. MILLER. It certainly does. Mr. SMITH. It does? Mr. MILLER. To the payment of these contributions; yes, sir. Mr. SMITH. Then, since it pledges the faith and credit of the United States Government for the payment of annual contributions, the annual contributions are security for any issues put out by the local authority. How can you say there is any difference between that pledge of faith and credit and any other pledge of faith and credit with respect to the sale of Federal securities? Mr. MILLER. Well, there is a great legal difference in the enforceability or in the remedies of the holder of the bond. Mr. SMITH. Let us trace that for a moment and see how it works out. Suppose a bond holder-a security holder-of the local housing authority takes his bond to the bank that is acting as trustee when the bond is due. He is paid. Where does the money derive, from which he is paid? Mr. MILLER. Are you referring to the bonds issued by the United States Government or to these housing bonds? Mr. SMITH. I am referring to what you call the bonds issued by the local housing authority. Mr. MILLER. It is paid out of the funds of the local authority, which consists of excess rents and income that they have plus the contribution which we make to make up whatever is missing. For instance, if the income of the project is sufficient to pay the bond service in any year, we do not pay any contribution. Mr. SMITH. Suppose that is insufficient? Mr. MILLER. Then, to the extent that it is insufficient, we pay the contribution. Mr. SMITH. And to the extent that you pay the contribution, then, the faith and credit of the United Government is pledged. Mr. MILLER. Well, I cannot add any more. Of course the faith and credit of the United States Government is pledged to the payment of the contribution; yes, sir. It is not pledged to the payment of the bond. Let me point out the essential difference again. In Ohio, the Youngstown Housing Authority issued about $375,000 worth of these housing bonds and they were held by the State Teachers Retirement Fund. When the Supreme Court of Ohio declared that their projects were not tax exempt, and when as a result the contributions could not be paid, the holder of those bonds could not sue the United States Government or have any remedy against us on those bonds. It had no legal remedy against the Government. Mr. SMITH. State that again. Mr. MILLER. I said the Youngstown, Ohio, Housing Authority issued bonds to the public, on its project, back in 1941 or 1942-I have forgotten the exact date. Three hundred and seventy-five thousand dollars' worth of these bonds were purchased by the State Teachers Retirement Fund. When the Supreme Court of Ohio held that the projects in Ohio were not tax exempt, and the city of Youngstown could not make its local contribution, and when therefore we could not pay contributions to the Youngstown Housing Authority, the holder of those Youngstown Housing Authority bonds had no remedy against the United States Government on those bonds, it could not collect on them from us. Mr. SMITH. I know what happened in that case. Mr. MILLER. In that case, with the cooperation of the Youngstown Housing Authority, we purchased the project fromMr. SMITH. Who purchased it? Mr. MILLER. FPHA. Mr. SMITH. The Federal Public Housing Authority? Mr. SMITH. You did that under a specific provision of the act which allows you to foreclose, did you not? Mr. MILLER. We took title under a specific authorization to purchase or otherwise acquire the property in order to protect our interest. Mr. SMITH. Then what happened? Did you close the project? Mr. MILLER. No; the project is still going. We have title to it. Mr. SMITH. You kept the project going just the same? Mr. MILLER. Yes, sir. We have title to it. Mr. SMITH. What are you trying to prove there? I do not quite understand you. Mr. MILLER. I am just trying to show you the difference between the obligation on a bond issued by the United States Government and the obligation of the Public Housing Administration to pay contributions on these housing projects. Mr. SMITH. And eventually you came around to the position where you are trying to make out before this committee that the faith and credit of the Federal Government is not pledged as security for the issues put out by the local housing authority. Now, you specifically put into this act a provision which allowed you to foreclose. And, after that foreclosure, was or was not the faith and credit of the Federal Government pledged as security for any issues that might be put out? Mr. MILLER. No, sir, it was not. After we purchased the project we had no obligation to pay off the bondholders. The bonds were local authority obligations, and it was the local authority which paid off the bondholders out of the proceeds from the purchase price. Mr. SMITH. Very well. It is your contention, then, that this language relating to the faith and credit of the United States "to solemnly pledge," and so forth, has no bearing whatsoever on the ultimate security that is back of the bonds which the local housing authority sells? Mr. MILLER. No; I have not said that at all. |